Saturday, July 11, 2009

Consumer Spending

From Visual Economics, a graphical representation appears above (click to enlarge) of Consumer Expenditures in 2007, using data from the Bureau of Labor Statistics. Note that total spending on food ($6,133), clothing ($1,881) and housing ($16,920) represented 50% of consumer expenditures and 30% of income before taxes in 2007. In 1997 by comparison, 51.1% of consumer expenditures were spent on food, clothing and housing, and 44.6% of income before taxes was spent on food, clothing and housing (data here).

The top 5% of wage earners earn $157,000 or more as of 2004 (sorry, fastest easiest date I can find, I don't want to search too long... opportunity cost and all). I wasn't able to find discretionary spending by group, but it would make logical sense that the group that makes the most money would have the most money available to spend on discretionary items.

Because of this, Obama's rhetoric about taxing the top 5% at a higher rate to give others breaks in their taxes or to pay for the government medical plan is wrong-headed at worst and economically disastrous at best. If the top group has less money to spend on stuff, the companies that make the stuff have less to make which makes the companies lay off workers. This makes everybody worse off than before unless the government is able to tax the top 5% at a high enough rate to give all of the unemployed more money than they made when they were working. Of course that would only work in the very short run.

Great graphic. It does make you wonder why people spend so much money...outside of the food, clothing and shelter envelope. Are commercials really that compelling? I'm not going to blow out the candles of others, to make my candle appear brighter...so I'll stop there, but I would like to thank the bond market lately for these fantastic returns. I live for them...and chocolate of course.

The top 5% pretty generally have everything they need, so their discretinary spending (depending on how youlook at it) is nearly all their spending. On the other hand, they don't really need much so they spend less and save more, relatively speaking.

On the rare occasion I am in a mall, you couldn't GIVE me most of that junk to take home: don't need it and don't want it. I have a lot more fun building a chair or table than buying one, anyway.

The savings winds up in investments, and that is what creates jobs ------- eventually. e.g. I bought a small hobby sawmill to cut up some trees that fell down, before long I've got people working for me.

That isn't much help if you need a job right now now. I could hire more people but I need a bigger sawmill, which I will have to save for (and its probably against my zoning anyway) - unless Obama gets the money first.

What is really weird is that you can be in the top 5% of wage earners, and yet 95% of the money is still earned by the 4.9% above you.

It is easy to be in the top five percent and not feel rich: all you have to do is browse the real estate ads for all those $10 million dollar beach cottages, and I'm not even talking about the real beach mansions.

At one point I was trying to raise money for a business venture, and one thing I learned from that is that thee are also people who are affluent, but have no money. people who are struggling to make their $5000 a month mortgage.

My guess is that what a lot of people think about the top 5% is mostly wrong. It isn't too hard to be an average cubicle worker bee, and still be in the top 5%.